Fed boosts gold

We are taking a look back at a week in which gold initially suffered from both rising US Treasury bond yields and profit-taking. In addition, few weeks this year are likely to be as packed with economic data as the current one, and this despite the public holiday in Central Europe yesterday and those in China and elsewhere that will follow.

Let’s focus on Europe for now: according to the initial GDP estimate for the first quarter of 2024, there are signs of positive economic growth in Germany and the eurozone, which saw more growth than analysts had expected on average. As the core inflation rate in the eurozone, adjusted for energy and food prices, was also down less than expected in April, yields on government bonds in eurozone countries rose.  

US key interest rate remains unchanged

In the US, meanwhile, labour costs rose much more sharply over the first quarter than analysts had expected. Compared to the previous year, they are now 4.2 per cent higher, which has further dampened expectations of the Fed initiating an interest rate turnaround. Prior to yesterday’s Fed meeting, the interest rate futures markets were therefore only pricing in a single rate hike in December. Many analysts now even consider a further interest rate hike by the Fed possible. However, after Fed Governor Jerome Powell continued to focus on potential interest rate cuts during the press conference, a second rate cut in 2024 was again priced in with a probability of almost 50 per cent.  Yields on US Treasuries dropped moderately, as did the US dollar, after a previously strong week.

Gold in US dollars recovers to previous week’s level

This, in turn, supported gold prices yesterday evening, after they had come under some pressure in the run-up to the Fed meeting:

Last Thursday, the precious metal still traded at 2,319 US$ per ounce and had risen again to 2,352 by midday on Friday. On Tuesday, the yellow metal lost around two per cent as the month of April came to a close and slipped below 2,300. After the weekly low of 2,282 yesterday morning, the Fed meeting was a blessing for gold, which rose to 2,328. Today, Thursday, we started European trading around 7:00 a.m. at 2,319 US$ per ounce, which is almost exactly last week’s level.

Xetra-Gold with similar performance

Xetra-Gold climbed from 69.60 € per gram last Thursday morning to 70.45 on Friday afternoon. After yesterday’s bank holiday, it was expected to kick off trading this morning at around 69.55 € per gram.

Tomorrow will see the publication of the US labour market report, which will most likely be studied meticulously by both the Fed and analysts. The coming week will be much quieter in terms of economic data, possibly providing for a few days to take a breather and consolidate this week’s violent market movements, which included trading in the Japanese yen.

I wish all readers a relaxing weekend.